Business group slams Canada’s process for procurement

Ottawa’s red tape is cheating taxpayers and stifling innovation, report concludes

The way Canadian governments buy goods and services is riddled with problems and it’s hurting Canadian companies and public services, says a new report.

At issue is a mix of bureaucratic hurdles, including a lengthy process that disincentivizes risk-taking and commercialization, and a lack of in-house capacity and expertise that discourages innovators from seeking government work and increases reliance on foreign companies.

“The current culture of government procurement — both federally and provincially — is not serving the Canadian economy, and it is not serving the government’s own purposes,” the report says.

The report comes as the federal government has faced one procurement controversy after another, most recently with the pandemic ArriveCan application, that have undermined confidence in a system that contributed nearly 15 per cent of Canada’s GDP in 2021.

“Fundamentally, this is about culture. There is a lot of risk in not changing how we do things,” said Laurent Carbonneau, the director of policy and research at the Council of Canadian Innovators and an author of the report.

“We have a system that’s creaky and you’re not producing great results.”

Carbonneau argues that as the country faces high interest rates and governments tackle increasing fiscal constraints following an expensive COVID-19 pandemic, there’s also an opportunity for Canada to find creative ways to spur innovation.

“We’re really letting innovators and Canadians down by not getting it right,” Carbonneau said in an interview. “There’s a lot of great products and services that, you know, really good companies are putting together that I think the public service and the public sector would benefit from that solve real problems.”

But a flawed procurement process has left us with government spending that has not created real value for the public, the report says. Last fall, the auditor general found that two-thirds of all government IT applications were “in critical need for modernization.” In the United Nations’ E-Government Development Index, which ranks countries’ digital services, Canada ranked 32nd in 2022, only higher than Italy among G7 nations. In 2003, Canada was third overall.

For one, the procurement process is lengthy and overly specific, dissuading many companies from participating, the report found.

“Layers of bureaucratic approvals, while individually justifiable, collectively stretch the process beyond timelines that are reasonable for commercial entities,” it says. “When domestic tech companies announce their intention to engage with procurement, it elicits caution from potential investors and deters investment.”

But the report also casts doubt on Canadian governments’ ability to find the most innovative solutions to their problems. A void in expertise in government, it argues, has left the public service ill-equipped to assess innovative solutions, leading to an overconcentration in procurement among large firms skilled in navigating the process, while sidelining smaller innovators.

And a narrow, risk-averse scope to procurement means Canadian innovators have little to gain from government contracts — and taxpayers are not receiving a return on their investments.

“Understanding the scope of this was really eye opening,” Carbonneau said. “We should be more alarmed than we are about the outcomes of that.”

As a result, Carbonneau says, Canadian wealth, innovation and productivity are falling behind, and innovators across the country are selling their products and ideas to other governments instead. For example, Canada is seen as a global leader in cybersecurity, “but almost no one consults with the Canadian government, even though they’re selling to NATO and Five Eyes allies quite comfortably,” Carbonneau said.

“That was a bit of a red flag for us.” The report looks at what it says are three successful models — in the United States, the United Kingdom and Finland — and says Canada should follow suit.

Those systems, the report argues, offer insight on how Canadian governments can create cultural change that makes taking on government contracts less risky for innovators, provides support for commercialization and growth and plans for issues that will come in the future.

That should come through dedicating a national procurement agency to act as a bridge between government and Canadian companies and creating a procurement target for small and medium businesses, for example.

“The stakes of this are really high and it’s not just a procurement thing, we have to look at all these tools and say, how are we actually building prosperity for the longterm?” Carbonneau said.

“If we fix that, I think we could be a richer country than we are right now and have a higher standard of living for ourselves and our kids.”